Operation of FDI Caps in India and Corporate Control Mechanisms

ISID Working Paper No. 2010/11

23 Pages Posted: 10 Jan 2011 Last revised: 21 Mar 2011

See all articles by K.S. Chalapati Rao

K.S. Chalapati Rao

Institute for Studies in Industrial Development (ISID)

Biswajit Dhar

Independent

Date Written: December 1, 2010

Abstract

While India has generally been following an open door FDI policy, a few areas are still subject to caps on FDI and or specific government approval. One of the justifications for the same is the need to retain a degree of control over the operations of the investee companies in Indian hands. Earlier this year, the government specified the methodology for calculating direct and indirect foreign equity in Indian companies in order to remove ambiguities in calculating the extent of FDI in a company. Based on empirical evidence this paper argues that percentage of shares or proportion of directors do not necessarily represent the extent of control and more direct intervention would be required if the objectives of imposing the caps are to be achieved.

Keywords: FDI Caps, Corporate Control, Veto Power, Minority Shareholders, Joint Control, Joint Ventures

Suggested Citation

KS, Chalapati Rao and Dhar, Biswajit, Operation of FDI Caps in India and Corporate Control Mechanisms (December 1, 2010). ISID Working Paper No. 2010/11. Available at SSRN: https://ssrn.com/abstract=1737632 or http://dx.doi.org/10.2139/ssrn.1737632

Chalapati Rao KS (Contact Author)

Institute for Studies in Industrial Development (ISID) ( email )

4, Institutional Area Phase-II
Vasant Kunj
New Delhi, Delhi 110070
India
911126764607 (Phone)

HOME PAGE: http://isid.org.in

Biswajit Dhar

Independent ( email )

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